Renting Out Property Beta: The Browsers

First weekend of the month. Few things are more frustrating than trying to rent out an apartment at the beginning of the month. It’s when a landlord has to deal with the browsers.

Browsers are the prospective tenants that look at apartments not to move in, but rather to get an “idea” of what they are looking for. They’re not actually serious about moving in right away, so they end up wasting my damned time. The first prospectives were a couple of dudes. The second was an older lady that was obviously not serious about renting. It didn’t help that I was in a foul mood thanks to Annabel relieving me from the shipping depot job FOUR HOURS late! I would like to simply not show the apartment at all and wait until the middle of the month when I get prospectives that are more serious, but there’s always a chance that I can get someone. It’s that “chance” of getting someone that forces me to show the apartment at this time. Getting this unit rented out means that I’ll have one less problem to deal with, as I’ve been hemorrhaging money ever since Stan and Kris moved out.

Since they finally fixed the bank job’s security wand last week, I can no longer play hookie everyday to show the apartment anytime I want. I’ll renew my Craigslist ad on Wednesday morning and set up showings for Wednesday and Thursday afternoon after work. My hope is that if I wade through enough of the browsers, I can find my tenant and make property Beta profitable again—sooner rather than later.

DEPRECIATION. D-e-p-r-e-c-i-a-t-i-o-n.

Over time, a property loses value due to wear and tear. That loss of value is known as depreciation. Because that loss of value is tax-deductible (on income tax), it’s definitely something that I need to know and master, especially after April’s tax hell. Residential income property is depreciated for a 27.5 year period, while commercial income property is depreciated for a 39 year period. The formula (also known as the “straight-line” formula) for depreciation goes like this:

I bought property Alpha in May of 2007 for $74,000, right? Because I get residential income from it, I use the 27.5 year formula. First I divide the 74,000 by 27.5, which gives me 2690. $2,690 is the max that I can deduct for the depreciation of property Alpha each year. Then I take that 2690 and divide it again by 12, which gives me 224. $224 is how much my depreciation is monthly. I then take that 224 and multiply it by the amount of months remaining for the first year. Since I bought it in May, there would be 7 months remaining but the IRS asks for people to always add .5 to that figure, so it would be 7.5 months for the first year. 7.5 months multiplied by 224 gives me 1680. $1680 is the amount I can deduct for the very first year I owned the property in 2007. After the first year, the depreciation will be $2,690 per year for as long as I own the property.

Of the money I get from the sale of the property (should I ever choose to do sell Alpha), I’ll be taxed on the total amount of depreciation money that I recover from the sale. This is called depreciation recapture. Wow, I read that back and it made sense! But I hope all the definitions won’t be this long.